Project risk management in new product development

Negar GhiamHaleh Givari

Javad ArjmandMohammad Mokhatabi

Dr. Sadeghi

Spring 2011

Introduction NPD starts with market

opportunities and technical possibilities.

Uncertain information

Precise information

NPD risks:Market related risks

Completion risks

Institutional risks

Concepts of uncertaintyUncertainty

RiskThe possibility of several possible

outcomes for a situation, each with a probability of occurrence.

Novel venture

Possible outcomes are knownProbabilities are unknown

New technology or new market

Unknown Unknowns

Approaches to buffersProject buffers:

Schedule buffers

Budget contingencies

Specification compromises

Schedule buffersCritical path (no slack)

Schedule buffers

The effectiveness of the schedule buffer is realizing that it is not

mainly a calculation device, but a tool to change attitudes.

Budget contingenciesBuffer for errors in cost estimates

Budget reserve: 5 to 10% of the estimated cost (20% in early phases)

Budget contingenciesUsed as an alternative to

schedule buffers and shorten the durations:

Working overtimeAdding additional or using more

experienced staffOutsourcing activitiesUpgrading equipment

Specification compromises

Microsoft focused on the most important features and entered PC software mass market.

Approaches to project risk managementPRM: formal process to manage

identifiable risk factorsIt consists of 4 phases:Risk identificationRisk assessment and

prioritizationRisk response planningDocumentation and learning

Project risk management

Risk identificationRisk lists

Risk assessment and prioritization

Risk status = (event amount at stake) * (event probability)

Risk response planning

Identified risk

Partially under the control of the team

Uncontrollable (No influence)

Risk preventionRisk avoidance- Use novel technologiesRisk mitigation- Market risksRisk transfer- Insurance

Uncontrollable risksContingency planning:

In project schedule and budget

Decision trees

Approaches to unforeseeable uncertainty

Increasing project flexibilityDiscovery driven planningInformation gap decision theory

Increasing project flexibilityOverlapping the development

phase and the implementation phase

Quick feedbacks about customer requirements

Discovery driven planningUncover unknown unknowns with

4 analyses:1. Reverse income statement2. Pro forma operations

specification3. Assumptions checklist4. Milestone planning

Information gap decision theory

Severe uncertaintyMaximize the robustness or

immunity to failure

The project goal and path are unknown

Unknown unknowns affecting the project goal

No project plan

The team knows little about the project outcomes

The project goal and path are unknown

Trial-and-error learning selectionism

Cost comparison of trial-and-error and selectionism

Benefit comparison of trial-and-error and selectionism

Case study:

Five small creative companies in UK

Risk vs. CreativityThe simultaneous rise of the risk

and creativity agendas is one of the great paradoxes of today.

Risk-avoidance strategies may often inhibit inventiveness.

This Research:

Linkages between formal views of design processes and risks within them.

Focus on human or non-measurable aspects of risk which are not usually ‘calculated’ by standard risk assessment tools or formulas.

Informal approaches to risk are especially relevant in small and medium companies which do not have the structure a larger company has to perform formal assessments.

New Product Development (NPD) process moves from one domain of decisions to another, and may be represented by a flow, with critical decision points appearing at intervals.

The NPD process is neither logical nor tidy

Seven Specific questions:1. How is risk assessed in small companies when critical

design decisions are made?

2. What kind of communication exists among the design team and the decision makers during the process of New Product Development?

3. What is the perceived weight of importance given to decisions made ‘live’ against a reflection over those same decisions at a later stage?

4. Is it possible to map the considerable literature based on management of risk in general management to the design function in creative companies?

5. Is it more appropriate to establish design as an integrated feature where risk is shared between decision ‘locations’?

6. Should we acknowledge that creativity in the design of new products is delightfully risky and defies a description?

7. What is the nature of risk sharing between designer’s decisions and those made by consumers?

Identifying Participating Companies

40 suitable design-led companies from an DTI/Design Council database of approximately 350 from across the UK.

The aim was for a 2 year (or less) product cycle to ‘fit’ within the time available for research.

10 companies were initially shortlist that expressed a positive initial attitude to participation and fulfilled the core project criteria.

5 were eventually selected for study.

Individuals with key role on the development of new products within their companies , committed to the promotion of design centered activities.

Selection of Companies for Study

All companies were in the process of starting a new product lifecycle but the products under Development varied :

Protective safety clothing,Catering equipment,Aids for the visually impairedhome entertainment equipment

a wide range of secondary material helped characterize the company culture, their products and their development process:

photographs, company literature and website material, notes from telephone conversations, emails, informal interactions, etc.

Semi-structured interviews were initially undertaken with selected key personnel.

Ongoing Interviews and Risk Forms

A tailor-made risk form (reflective diary) was produced for each person/company

Regular semi-structured interviews were then undertaken to provide detailed ‘commentary’ on risk issues as the NPD process continued.

The risk forms were again used in conjunction with the interviews to record the perceived relative importance of risk areas.

Summary Company Descriptions and New Products TrackedCompany 1

A social enterprise developing innovative and attractive fluorescent, reflective clothing and accessories for children to make them safer when cycling and walking.

The product tracked during the study was a new high visibility garment incorporating a novel surface design element.

 

Summary Company Descriptions and New Products Tracked

company 2

The largest of the 5 companies studied

Designs and develops high-quality hi-fi equipment, including loudspeakers.

The product selected for study was a new constituent (loudspeaker) of an integrated ‘home-entertainment system’

 

Summary Company Descriptions and New Products Tracked

company 3

designs, develops and manufactures a range of safety headwear for rescue services, military organizations and

recreational markets.

the product studied was a new safety helmet aimed specifically at surfers.

 

Summary Company Descriptions and New Products Tracked

company 4

This company designs and develops a range of innovative catering equipment based on ‘induction energy’.

The product tracked was an innovative multi-element hot plate.

 

Summary Company Descriptions and New Products Tracked 

company 5

Produces a range of products designed to assist visually-impaired people.

The product tracked was a new desk top printer, capable of handling these specialist chemical-coated papers.

 

Results

The interviewees were asked to identify the future risks which they perceived to be significant.

Despite the relatively small sample size, a very wide range of risks were identified.

Only 2 of these specific risks were common to 3 or more companies, and only 6 common to 2 companies.

This highlights the very individual nature of risk perception in companies, even where firms share a number of core characteristics

 

The only recognizably common risk issues are:

competition, correct pricing, developing and protecting IPR, technical risks (around components) and the retention of key personnel.

Despite this lack of commonality, a number of broad (non-discrete) risk domains were recognized, including:

• Financial: operational finance, access to working capital,pricing.

• Personal: personal finance, family circumstances.

• Intellectual Property: developing and protecting ideas,research needs.

• Regulatory compliance: policy changes, safety issues, new standards.

• Markets: competition, consumer / customer response.

• Technical: manufacturing processes, new technologies, components.

• Partnerships / collaborations: networks, cross-functional teams, formal / informal partnerships, e.g. suppliers, specialist input, distribution networks.

• Organizational: capacity, skills, support / commitment to NPD.